But, we’re interested in making money. And right now could be the best time to get into the market for a chance to both protect your existing wealth and to make money.
We’re not talking about stock markets here. Whilst there are good “value” opportunities to be had in defensive stocks, there’s another far better place to deploy some capital.
The market that really deserves your attention is gold.
The perfect storm that will drive the gold price higher
Because there is the financial equivalent of a perfect storm converging on the markets: fear of further financial catastrophe; the further printing of money by governments desperate to avoid deflation; and the looming threat of inflation coming back with a vengeance as a result of this government stimulus.
And when it hits, there’s going to be a rush of global capital into gold. The time to get in is now… ahead of this surge. Gold may well turn into the next asset bubble. If we’re going to make money from it, we want to be in it before the crowd starts pumping that bubble up.
So far, gold is perceived as what it’s best at being: the ultimate store of value. For that reason alone, it’s already starting to attract a small, but growing crowd, as Bill Bonner, points out:
“Still, the crowds are pretty thin, compared to what they will be when the bull market in gold really takes over. Then, your neighbours will be talking about gold... and telling you how much money they made in gold. That’s still ahead... when gold goes over $1,000... over $1,500... over $2,000.”
This isn’t small-time investors driving gold, though. Not yet. What we’re seeing is an influx of money from bigger institutional investors, eager to hedge portfolios with a more stable asset class. This is a fairly new development. Until recently, the bigger money had been staying out of gold.
“It’s not just the hyperactive, hot money hedge funds batting around gold anymore,” says Andrew Mickey of Prosperity Dispatch. “Now pension funds, mutual funds, and other institutional investors are betting on gold – in a big way.
“That is the big difference this time around. The big money interest hasn’t been there for decades, and it looks like that’s quickly starting to change.”
And sooner or later, when it hits the mainstream press, then there’ll be another flood of “hot money” that will continue to drive the price higher.
The big move is already under way
The move has already started, by the way. Gold is up 13% in the past month. Since it bottomed near $700 in November, gold has rallied by 33%. And it looks like it’s just getting started.
Speculators in the gold options market – amongst the smartest of market participants – are betting on gold topping $1,000 by April. They clearly see $940 as cheap. Meanwhile, Peter
Munk, Chairman of the world’s largest gold producer, Barrick Gold, said: “Do I personally believe gold will break through $1,000? It’s not a question of if, it’s a question of how soon.”
Munk sees what he calls an “unpleasant and frightening” trend of investors buying gold as protection against uncertainty in world markets. People no longer believe in the security of the US dollar and other paper currencies. Gold is seen as the only “currency” that can hold its value no matter what happens.
From a technical analysts’ view, gold is also looking good. Citigroup chartists wrote this week, “we see gold breaking further through key levels and the market appears on course to making new highs… we therefore remain unequivocally bullish on the short-, medium- and long-term outlook for gold… this useless metal that yields nothing can eventually test $2,000”.
It doesn’t really matter whether you believe we’re faced with deflation or inflation. Gold can protect you whichever happens. If we get inflation, gold will attract money. Whilst the value of everything else is eroded by inflation, gold holds its value.
If we get deflation, then governments will debase their paper currencies – as they are doing already. But sooner or later, this will reignite inflation…
Gold is a great way of protecting a portion of your wealth right now. And if money continues to flow into gold, then you could also make a very decent profit in the months ahead.
Source Frank Hemsley For The Right Side
Thursday, February 19, 2009
Wednesday, February 18, 2009
Stocks will recover long before the economy
Stocks will recover long before the economy
BY THEO CASEY
We have good and bad news. The bad news? By some bearish estimates, we face a 50% fall in global corporate profits over the next two years. The good news? Despite these facts, right now is a good… scratch that…great time to buy shares.
Earnings are only one half of the story. Prices are just as important. The FTSE 350 may have fallen 37% since the peak of the bull market in 2007, but earnings have only fallen 10% so far.
By our calculations, markets have already “priced in” significant losses. Stock markets are said to be forward-looking. This means that even though earnings data will be bad for the foreseeable future, the markets will not necessarily be so.
I believe – as we saw in the 1991 and 2000 recessions – that the stock market recovery will play out in three phases. Take a look at the chart below. It is a projection of stock market returns and corporate earnings.
The orange line represents earnings – how much money the company makes. The black line represents prices – how much money the shares make for investors.
Citigroup anticipates that share prices will bottom out and start a slow recovery in the near-term. At this point earnings will still be falling. Then, expect a mild recovery in defensive stocks.
However, in phase 3, investors will become more adventurous as earnings and the economy begin to recover. It is here that the next bull market can begin.
I see prices breaking away from earnings as more and more investors eventually see the light at the end of the recessionary tunnel. Once confidence and economic forecasts improve, so too will prices.
I believe that there is money to be made by investing in cheap, defensive, high-yield stocks. Rather than a negative, you should see the gloomy sentiment as a plus. It could well prove the best time to buy.
Stock market has been the leading indicator of every economy & industry and it haven't change to date.
BY THEO CASEY
We have good and bad news. The bad news? By some bearish estimates, we face a 50% fall in global corporate profits over the next two years. The good news? Despite these facts, right now is a good… scratch that…great time to buy shares.
Earnings are only one half of the story. Prices are just as important. The FTSE 350 may have fallen 37% since the peak of the bull market in 2007, but earnings have only fallen 10% so far.
By our calculations, markets have already “priced in” significant losses. Stock markets are said to be forward-looking. This means that even though earnings data will be bad for the foreseeable future, the markets will not necessarily be so.
I believe – as we saw in the 1991 and 2000 recessions – that the stock market recovery will play out in three phases. Take a look at the chart below. It is a projection of stock market returns and corporate earnings.
The orange line represents earnings – how much money the company makes. The black line represents prices – how much money the shares make for investors.
Citigroup anticipates that share prices will bottom out and start a slow recovery in the near-term. At this point earnings will still be falling. Then, expect a mild recovery in defensive stocks.
However, in phase 3, investors will become more adventurous as earnings and the economy begin to recover. It is here that the next bull market can begin.
I see prices breaking away from earnings as more and more investors eventually see the light at the end of the recessionary tunnel. Once confidence and economic forecasts improve, so too will prices.
I believe that there is money to be made by investing in cheap, defensive, high-yield stocks. Rather than a negative, you should see the gloomy sentiment as a plus. It could well prove the best time to buy.
Stock market has been the leading indicator of every economy & industry and it haven't change to date.
Tuesday, February 17, 2009
How long before the stock market recovers?
How long before the stock market recovers?
History and the London Business School Global Investment Returns Yearbook with investment bank Credit Suisse have suggestions
It’s the question every investor wants answered: how long will it take the stock market to recover?
Last week, professors Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School offered an answer when they published their Global Investment Returns Yearbook with investment bank Credit Suisse.
History offers a patchy guide. After the 1987 crash, global investors recouped their losses in just two years. Even after the 1973–74 bear market, when the UK market fell 73% in real terms, it took the All-Share index fewer than three years to regain its previous high, though after inflation it took eight years.
Investors can draw less comfort from the Great Depression, however, when it took US stocks until 1949 to rise decisively above their 1929 pre-crash high in real terms.
London Business School took as its starting point the fact that shares have historically returned 3.5% more than cash. On this basis, the FTSE 100 has a 50% chance of regaining its previous high (6,930 in December 1999) by 2019. If dividends are included, however, there is a 50% chance of it getting back to its peak by 2014.
Marsh said: “These estimates are simply probabilities. We may be lucky: there may be a speedy rebound, and recovery may be faster than is portrayed. But there could also be a lengthy Japan-style era, in which markets do not recover for a long time.”
However, he pointed out that certain assets could help investors to regain previous highs more quickly. Investing in smaller UK companies would have given you an additional 2.3% return every year since 1955 — although of course you would have been taking a greater risk.
Similarly, investing in so-called “value” stocks — those that trade on a low multiple of their earnings, dividends, or book value — would have delivered an additional 1.5% a year.
Some of the country’s best funds managers, including Neil Woodford, who runs Invesco Perpetual’s Income and High Income funds, follow a “value” approach. For Woodford it seems to have delivered: the Income fund is up 145% over the past 10 years and his other fund is not far behind.
The report, while recognising that investors have suffered savage losses on the stock market, urges them to keep faith.
Marsh said: “Equity investors can expect to be more than 40% richer relative to investing in cash over a 10-year horizon, and twice as rich over 20 years.
“While investors should keep faith with stocks, they should not harbour fantasies of an immediate return to either previous (and, with hindsight, unrealistic) market levels, or to previous high rates of return.”
“We were spoiled by the high returns of the 1980s and 1990s, when equities seemed a sure-fire route to getting rich quickly. Today, as we look ahead, while we should expect to enrich ourselves from equities, the process is likely to be one of getting rich more slowly.”
Advisers said the report confirms investors should check they have the best assets for their attitude to risk.
From timesonline.
History and the London Business School Global Investment Returns Yearbook with investment bank Credit Suisse have suggestions
It’s the question every investor wants answered: how long will it take the stock market to recover?
Last week, professors Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School offered an answer when they published their Global Investment Returns Yearbook with investment bank Credit Suisse.
History offers a patchy guide. After the 1987 crash, global investors recouped their losses in just two years. Even after the 1973–74 bear market, when the UK market fell 73% in real terms, it took the All-Share index fewer than three years to regain its previous high, though after inflation it took eight years.
Investors can draw less comfort from the Great Depression, however, when it took US stocks until 1949 to rise decisively above their 1929 pre-crash high in real terms.
London Business School took as its starting point the fact that shares have historically returned 3.5% more than cash. On this basis, the FTSE 100 has a 50% chance of regaining its previous high (6,930 in December 1999) by 2019. If dividends are included, however, there is a 50% chance of it getting back to its peak by 2014.
Marsh said: “These estimates are simply probabilities. We may be lucky: there may be a speedy rebound, and recovery may be faster than is portrayed. But there could also be a lengthy Japan-style era, in which markets do not recover for a long time.”
However, he pointed out that certain assets could help investors to regain previous highs more quickly. Investing in smaller UK companies would have given you an additional 2.3% return every year since 1955 — although of course you would have been taking a greater risk.
Similarly, investing in so-called “value” stocks — those that trade on a low multiple of their earnings, dividends, or book value — would have delivered an additional 1.5% a year.
Some of the country’s best funds managers, including Neil Woodford, who runs Invesco Perpetual’s Income and High Income funds, follow a “value” approach. For Woodford it seems to have delivered: the Income fund is up 145% over the past 10 years and his other fund is not far behind.
The report, while recognising that investors have suffered savage losses on the stock market, urges them to keep faith.
Marsh said: “Equity investors can expect to be more than 40% richer relative to investing in cash over a 10-year horizon, and twice as rich over 20 years.
“While investors should keep faith with stocks, they should not harbour fantasies of an immediate return to either previous (and, with hindsight, unrealistic) market levels, or to previous high rates of return.”
“We were spoiled by the high returns of the 1980s and 1990s, when equities seemed a sure-fire route to getting rich quickly. Today, as we look ahead, while we should expect to enrich ourselves from equities, the process is likely to be one of getting rich more slowly.”
Advisers said the report confirms investors should check they have the best assets for their attitude to risk.
From timesonline.
Sunday, February 15, 2009
The stock market, will not recover until 2011
Researchers say economic downturn may be longer than historical stock market averages suggest
by Gail MarksJarvis
Are you too optimistic or pessimistic about the economy and stock market?
If you've been encouraged by historical averages, which show the stock market rebounds after 18 months in a bear market, you might be among the people expecting a powerful and lasting surge in stocks later this year. But if you happen to be aware of a piece of research that's making the rounds in the investing profession's inner circles lately, you probably have cast aside the averages and are focused on a much grimmer picture.
Many investors are being told by market pundits and financial planners that relief may be at hand, but this new research suggests that investors who indulge in stocks now may have to be patient for longer than they assume.
"Our view is that the market doesn't recover for another two years," said Kenneth Rogoff, a Harvard economics professor and one of the authors of the research. Rogoff and Carmen Reinhart, a professor of public policy and economics at the University of Maryland, have examined financial crises throughout the world since World War II and concluded that housing, like the stock market, will not recover until 2011.
Financial crises are more severe than typical recessions, the authors said, because the financial system is the lifeblood of an economy. And the longer it fails to pump money into the system, the more the economy is damaged.
In the average financial crisis, housing declines 35 percent and doesn't recover for six years, the researchers found. The stock market, on average, declines nearly 56 percent and the downturn lasts 3.4 years.
Currently housing—measured by the Case-Shiller index—is down about 25 percent after reaching a peak in 2006. And the Standard & Poor's 500 stock index dropped 52 percent from its October 2007 high to its lowest point in November 2008. But the researchers said the severity of the current financial situation makes them think that relief remains distant.
Rogoff said that if the government does not quickly put some of the nation's largest financial institutions into a form of receivership—or short-term national control—the current situation could evolve into a crisis like Japan's or the Great Depression, with the economy rolling in and out of recession for years. Japan began a downturn in the early 1990s and has yet to recover.
A key to fixing the system when widespread banking issues are involved is to take decisive action quickly, the researchers found.
Even with that sort of action, they do not expect growth to return to typical levels for about three years.
"This is among the most serious crises," Reinhart said. "It has hit every strata of finance—the largest banks, the regional banks, and the brokerage industry as we've known it has ceased to exist. This is not like the savings and loan [failures of a generation ago], which were confined to one industry. And this is international to boot."
When a financial crisis is centered in merely one country or region of the world, other, stronger nations help with debt problems and import the distressed countries' products so the economy can strengthen. That was the case, for example, in the Asian crisis of 1997-98.
But in the current situation, financial problems reach outside the U.S. and the world economy is slowing along with ours, disrupting the ability of other nations to help the U.S. by importing products, Reinhart said.
The financial system is so deeply injured, Rogoff said, "I can't imagine robust growth when this is over."
The bailout that will be required is likely to cost the U.S. $2 trillion to $3 trillion, he said. But his research shows that the longer the government waits, the worse the economy will deteriorate and the higher the price tag.
His research shows that it is not the bailout that adds the most cost to governments in a financial crisis. It's the impact of a downward-spiraling economy.
As people lose jobs and business weakens, tax receipts fall. In the typical financial crisis, unemployment climbs 7 percentage points above where it had been before the downturn. In this case, that would put the rate above 11 percent, much higher than the current 7.6 percent.
Unemployment tends to continue to rise even while the economy is starting to stabilize and the stock market is climbing.
Despite their predictions, Reinhart and Rogoff think that with quick action, the recession will technically end late this year.
But Reinhart said the government "must bite the bullet."
To stabilize the financial system, the professors suggest the government take over banks that are insolvent on a short-term basis and then eventually sell assets to private businesses. Rogoff does not think it's possible to cure the problem with private investment initially.
by Gail MarksJarvis
Are you too optimistic or pessimistic about the economy and stock market?
If you've been encouraged by historical averages, which show the stock market rebounds after 18 months in a bear market, you might be among the people expecting a powerful and lasting surge in stocks later this year. But if you happen to be aware of a piece of research that's making the rounds in the investing profession's inner circles lately, you probably have cast aside the averages and are focused on a much grimmer picture.
Many investors are being told by market pundits and financial planners that relief may be at hand, but this new research suggests that investors who indulge in stocks now may have to be patient for longer than they assume.
"Our view is that the market doesn't recover for another two years," said Kenneth Rogoff, a Harvard economics professor and one of the authors of the research. Rogoff and Carmen Reinhart, a professor of public policy and economics at the University of Maryland, have examined financial crises throughout the world since World War II and concluded that housing, like the stock market, will not recover until 2011.
Financial crises are more severe than typical recessions, the authors said, because the financial system is the lifeblood of an economy. And the longer it fails to pump money into the system, the more the economy is damaged.
In the average financial crisis, housing declines 35 percent and doesn't recover for six years, the researchers found. The stock market, on average, declines nearly 56 percent and the downturn lasts 3.4 years.
Currently housing—measured by the Case-Shiller index—is down about 25 percent after reaching a peak in 2006. And the Standard & Poor's 500 stock index dropped 52 percent from its October 2007 high to its lowest point in November 2008. But the researchers said the severity of the current financial situation makes them think that relief remains distant.
Rogoff said that if the government does not quickly put some of the nation's largest financial institutions into a form of receivership—or short-term national control—the current situation could evolve into a crisis like Japan's or the Great Depression, with the economy rolling in and out of recession for years. Japan began a downturn in the early 1990s and has yet to recover.
A key to fixing the system when widespread banking issues are involved is to take decisive action quickly, the researchers found.
Even with that sort of action, they do not expect growth to return to typical levels for about three years.
"This is among the most serious crises," Reinhart said. "It has hit every strata of finance—the largest banks, the regional banks, and the brokerage industry as we've known it has ceased to exist. This is not like the savings and loan [failures of a generation ago], which were confined to one industry. And this is international to boot."
When a financial crisis is centered in merely one country or region of the world, other, stronger nations help with debt problems and import the distressed countries' products so the economy can strengthen. That was the case, for example, in the Asian crisis of 1997-98.
But in the current situation, financial problems reach outside the U.S. and the world economy is slowing along with ours, disrupting the ability of other nations to help the U.S. by importing products, Reinhart said.
The financial system is so deeply injured, Rogoff said, "I can't imagine robust growth when this is over."
The bailout that will be required is likely to cost the U.S. $2 trillion to $3 trillion, he said. But his research shows that the longer the government waits, the worse the economy will deteriorate and the higher the price tag.
His research shows that it is not the bailout that adds the most cost to governments in a financial crisis. It's the impact of a downward-spiraling economy.
As people lose jobs and business weakens, tax receipts fall. In the typical financial crisis, unemployment climbs 7 percentage points above where it had been before the downturn. In this case, that would put the rate above 11 percent, much higher than the current 7.6 percent.
Unemployment tends to continue to rise even while the economy is starting to stabilize and the stock market is climbing.
Despite their predictions, Reinhart and Rogoff think that with quick action, the recession will technically end late this year.
But Reinhart said the government "must bite the bullet."
To stabilize the financial system, the professors suggest the government take over banks that are insolvent on a short-term basis and then eventually sell assets to private businesses. Rogoff does not think it's possible to cure the problem with private investment initially.
Friday, February 13, 2009
Investing in a crisis 101
Statistics show that only nine out of every 100 South Africans will retire comfortably. David Crosoer, senior analyst at PPS Investments, gives us a few pointers on how we should be handling our retirement investments in 2009...
In the last few months of 2008 many South Africans will have reacted, with dismay, to the drop in the value of their savings accounts and retirement planning portfolios due to the global financial meltdown which hit both local and global stock markets.
As it might be tempting to use these events as an excuse for not saving or for making knee jerk reactions to your portfolio, like switching to less risky assets, South Africans should remember that when it comes to planning for your retirement one cannot afford to make mistakes nor be swayed by short-term fluctuations in the market.
After all, in only 40 years of work, we have to save for at least 20 years of retirement! This means that for every year that you work you need to fund at least six months of spending into your retirement planning.
Read on to see what you should be doing in 2009...
How does the crisis affect my portfolio?
The bad news will affect your assets in the short term which could be a year or two. In terms of retirement you are in it for the long-term and the markets will recover over time. It is a good time to make regular investments each month to take advantage of the cheap equity prices.
Should I make changes to my portfolio?
You might need to re-balance your investment portfolio. This typically happens when one asset class performs significantly better than another asset class making your portfolio look quite different from how it first looked when you set it up.
Rebalancing means you should sell the asset which has been outperforming and buy the asset which has underperformed. This sounds counter-intuitive, but makes sense if you want to keep your portfolio correctly positioned for your long-term goals.
However, if your portfolio was inappropriately invested before the crisis or your financial circumstances have changed you would need to talk to your financial advisor in order to make changes.
If I lose my job this year should I cash out my retirement savings?
If you currently have a company pension plan you are able to access the money if you are retrenched, fired or choose to leave your job. However, don't do it if you do not have to as you need to be aware of the tax consequences of doing so. Cashing out early means that savings cannot grow over time and you may be left facing a very difficult retirement. This same principle applies to cashing out other savings policies.
How do I know if I am saving enough each month for retirement?
You should talk to your financial advisor. There is also software you can download off the web. A simple rule of thumb is that by the time you retire you should have accumulated between 10 and 20 times your final annual income. Unfortunately, most of us will fall short of this. Statistics show that only nine out of every 100 South Africans will retire comfortably. So, start saving early or start now if you haven't thus far.
What are the tax advantages of contributing toward retirement savings?
A retirement annuity allows you to contribute 15 percent of your taxable income as a maximum tax-deductible contribution. Thus, if you earn R300�000 per year, 15 percent of this income (R45�000) per year can be used as a tax deductible contribution.
In essence you defer your tax payment on your contributions until you retire when you are taxed on the income you withdraw. This is to your advantage if your tax rate when you retire is less than your tax rate when you make your contributions, which will almost always be the case if you aren't saving enough towards retirement. Thus if you are behind on your contributions you will probably have a big advantage for saving in an annuity. Capital gains and interest earned are also not taxed with an annuity which is to your advantage.
Source
I'm not joining the crisis, find out how on future post.
In the last few months of 2008 many South Africans will have reacted, with dismay, to the drop in the value of their savings accounts and retirement planning portfolios due to the global financial meltdown which hit both local and global stock markets.
As it might be tempting to use these events as an excuse for not saving or for making knee jerk reactions to your portfolio, like switching to less risky assets, South Africans should remember that when it comes to planning for your retirement one cannot afford to make mistakes nor be swayed by short-term fluctuations in the market.
After all, in only 40 years of work, we have to save for at least 20 years of retirement! This means that for every year that you work you need to fund at least six months of spending into your retirement planning.
Read on to see what you should be doing in 2009...
How does the crisis affect my portfolio?
The bad news will affect your assets in the short term which could be a year or two. In terms of retirement you are in it for the long-term and the markets will recover over time. It is a good time to make regular investments each month to take advantage of the cheap equity prices.
Should I make changes to my portfolio?
You might need to re-balance your investment portfolio. This typically happens when one asset class performs significantly better than another asset class making your portfolio look quite different from how it first looked when you set it up.
Rebalancing means you should sell the asset which has been outperforming and buy the asset which has underperformed. This sounds counter-intuitive, but makes sense if you want to keep your portfolio correctly positioned for your long-term goals.
However, if your portfolio was inappropriately invested before the crisis or your financial circumstances have changed you would need to talk to your financial advisor in order to make changes.
If I lose my job this year should I cash out my retirement savings?
If you currently have a company pension plan you are able to access the money if you are retrenched, fired or choose to leave your job. However, don't do it if you do not have to as you need to be aware of the tax consequences of doing so. Cashing out early means that savings cannot grow over time and you may be left facing a very difficult retirement. This same principle applies to cashing out other savings policies.
How do I know if I am saving enough each month for retirement?
You should talk to your financial advisor. There is also software you can download off the web. A simple rule of thumb is that by the time you retire you should have accumulated between 10 and 20 times your final annual income. Unfortunately, most of us will fall short of this. Statistics show that only nine out of every 100 South Africans will retire comfortably. So, start saving early or start now if you haven't thus far.
What are the tax advantages of contributing toward retirement savings?
A retirement annuity allows you to contribute 15 percent of your taxable income as a maximum tax-deductible contribution. Thus, if you earn R300�000 per year, 15 percent of this income (R45�000) per year can be used as a tax deductible contribution.
In essence you defer your tax payment on your contributions until you retire when you are taxed on the income you withdraw. This is to your advantage if your tax rate when you retire is less than your tax rate when you make your contributions, which will almost always be the case if you aren't saving enough towards retirement. Thus if you are behind on your contributions you will probably have a big advantage for saving in an annuity. Capital gains and interest earned are also not taxed with an annuity which is to your advantage.
Source
I'm not joining the crisis, find out how on future post.
Thursday, February 12, 2009
Beware of Market Forecasting
Utah Investors: Beware of Market Forecasting
By Dave Young, President of Paragon Wealth Management
There’s no shortage of self-proclaimed market prophets in Utah and throughout the nation. You can find them in the investment magazines, newspapers or CNBC. Although they can be entertaining, they provide no real investment value. They do not help anyone make money. In fact, investors who follow them are more likely to lose money than to gain it.
The way the forecasting game works is that the market guru, seer, pundit or executive continually makes forecasts in an attempt to gain public attention. By sheer luck maybe half of these predictions are proven right-meaning that at least half of them are wrong. On the occasions when the forecast turns out to be correct, the forecaster plays it up. Those many forecasts that don’t pan out (and those many investors who are financially hurt by them) are never spoken of again. In truth, you’re much more likely to get an accurate prediction of the future by listening to the weather forecasters. At least they inflict less damage when they’re wrong.
Yet despite mountains of data that show how ineffective the celebrity market forecasters are, they continue to make their predictions and many unfortunate people continue to base their financial decisions on shoddy, unproven advice.
Market professionals are not alone in their inability to forecast market behavior. Economists do just as poorly. Every six months the Wall Street Journal prints the results of a survey of leading economists who predict the level and direction of interest rates for the coming six months. 55 high profile economists currently participate in this semiannual forecast. You’d think such prestigious economists in such a high profile newspaper would know what they’re talking about, right? Nope.
If they’d just blindly guessed they’d have a 50/50 chance, but their actual educated predictions turn out to be much worse. And these are the best the industry has to offer!
So if forecasts are a waste of time then what does work? I am convinced that investors will only succeed when they are able to remove emotion from the investment process. Gut feelings are not a reliable investment strategy-even the gut feelings of so-called experts.
Source
In any investment decisions you'll make always have a plan b.
By Dave Young, President of Paragon Wealth Management
There’s no shortage of self-proclaimed market prophets in Utah and throughout the nation. You can find them in the investment magazines, newspapers or CNBC. Although they can be entertaining, they provide no real investment value. They do not help anyone make money. In fact, investors who follow them are more likely to lose money than to gain it.
The way the forecasting game works is that the market guru, seer, pundit or executive continually makes forecasts in an attempt to gain public attention. By sheer luck maybe half of these predictions are proven right-meaning that at least half of them are wrong. On the occasions when the forecast turns out to be correct, the forecaster plays it up. Those many forecasts that don’t pan out (and those many investors who are financially hurt by them) are never spoken of again. In truth, you’re much more likely to get an accurate prediction of the future by listening to the weather forecasters. At least they inflict less damage when they’re wrong.
Yet despite mountains of data that show how ineffective the celebrity market forecasters are, they continue to make their predictions and many unfortunate people continue to base their financial decisions on shoddy, unproven advice.
Market professionals are not alone in their inability to forecast market behavior. Economists do just as poorly. Every six months the Wall Street Journal prints the results of a survey of leading economists who predict the level and direction of interest rates for the coming six months. 55 high profile economists currently participate in this semiannual forecast. You’d think such prestigious economists in such a high profile newspaper would know what they’re talking about, right? Nope.
If they’d just blindly guessed they’d have a 50/50 chance, but their actual educated predictions turn out to be much worse. And these are the best the industry has to offer!
So if forecasts are a waste of time then what does work? I am convinced that investors will only succeed when they are able to remove emotion from the investment process. Gut feelings are not a reliable investment strategy-even the gut feelings of so-called experts.
Source
In any investment decisions you'll make always have a plan b.
Wednesday, February 11, 2009
Some Fundamental analysis
A way to value the worth of a company's assets
How do you value a junior resource company? You could argue two points – one is that the stock is worth whatever it’s trading. Even if a company has 1 million ounces of gold or 100 million pounds of zinc or whatever, if the stock is trading at 10 cents, it’s worth 10 cents.
One of the greatest tools the industry created for itself this cycle, was the valuation for “pounds in the ground”. Basically, investors can take the market capitalization of a company with a 43-101 compliant resource, and divide that by the number of ounces, pounds, kilos – whatever – to get a value per “pound in the ground”.
As an example, if ABC company has 50 million shares out and trades at $1, with 1 million ounces of proven gold in the ground, then it trades at $50 per ounce. You compare that number against its peer group, and if ABC Company is below the average, then all other factors being equal (and they never are) the stock is considered cheap. If it’s above the average, it’s expensive.
As a real life example, Canaccord Capital did this calculation for a list of copper companies they cover. Their research found the average value per pound in the ground of compliant copper resources was 1.18 cents, with a range of -.30 cents (meaning the company was trading below the value of the cash in the treasury and the copper was free) to 4.48 cents per pound.
A much more simple calculation came out a few years ago that has been widely adopted by investors. I first heard it from one of the best mining entrepreneurs ever, Robert Friedland, when talking about his Oyu Tolgoi deposit in Mongolia. He said the company – Ivanhoe Mines - should get 10% of the value in the ground in his stock. (I don’t know if he was the first or not but that’s where I heard it first.)
So if the gross metal value of a (43-101 compliant) resource is $1 billion, the market cap of the company should be $100 million.
This is actually easy to calculate, thanks to www.kitco.com – or at www.caseyresearch.com . They have an online calculator in which you just
1. input the grades on the resource from the press release, and it tells you what the value per tonne is.
2. Multiply it by the tonnage (you have to do that yourself) in the press release and PRESTO – gross metal value.
3. Shift the decimal point over 1 spot to get 10% of the value.
4. Divide by the amount of shares outstanding and you get what the price of the stock SHOULD be.
Lets take a real case example. Donner Metals (DON-TSXv) just announced their first resource calculation for a developing zinc project in Quebec. Here’s what the press release said:
DONNER METALS LTD.-INITIAL BRACEMAC-MCLEOD NI43-101 INDICATED RESOURCE: 3,648,000 TONNES AT 11.09% ZINC, 1.55% COPPER, 31.34 G/T SILVER AND 0.48 G/T GOLD.
Then I go here - www.kitco.com/pop_windows/kitcorockcalc.html - and insert those values into the chart, and I get a value of $201.05/tonne.
Multiply that by the 3,648,000 tonnes and you get a gross metal value, according to Kitco, of roughly $733,440,000. So Donner should have a Kitco-calculated market cap of $73,344,400. But they only own 35% of the deposit, so that, again according to Kitco, values them at $25,670,400. Divide that by the 44 million shares out, and you get 58 cents.
So by the 10% rule and the Kitco calculation, the stock should trade at 55 cents. But it’s 12 cents, and in this market I would suggest 55 cents is a little aggressive. However, the 10% rule does give investors a benchmark to decide in their own mind what value is.
The message is – you can do your own research, quite easily, to determine whether a company’s stock price is under-, fairly-, or over-valued. Use the free internet tools available to you and use your own judgment.
Gord Zelko, Publisher
Source
Fundamental & Technical analysis in the Stock Market are two different things but it will be great if they showing the same signal (buy or sell).
How do you value a junior resource company? You could argue two points – one is that the stock is worth whatever it’s trading. Even if a company has 1 million ounces of gold or 100 million pounds of zinc or whatever, if the stock is trading at 10 cents, it’s worth 10 cents.
One of the greatest tools the industry created for itself this cycle, was the valuation for “pounds in the ground”. Basically, investors can take the market capitalization of a company with a 43-101 compliant resource, and divide that by the number of ounces, pounds, kilos – whatever – to get a value per “pound in the ground”.
As an example, if ABC company has 50 million shares out and trades at $1, with 1 million ounces of proven gold in the ground, then it trades at $50 per ounce. You compare that number against its peer group, and if ABC Company is below the average, then all other factors being equal (and they never are) the stock is considered cheap. If it’s above the average, it’s expensive.
As a real life example, Canaccord Capital did this calculation for a list of copper companies they cover. Their research found the average value per pound in the ground of compliant copper resources was 1.18 cents, with a range of -.30 cents (meaning the company was trading below the value of the cash in the treasury and the copper was free) to 4.48 cents per pound.
A much more simple calculation came out a few years ago that has been widely adopted by investors. I first heard it from one of the best mining entrepreneurs ever, Robert Friedland, when talking about his Oyu Tolgoi deposit in Mongolia. He said the company – Ivanhoe Mines - should get 10% of the value in the ground in his stock. (I don’t know if he was the first or not but that’s where I heard it first.)
So if the gross metal value of a (43-101 compliant) resource is $1 billion, the market cap of the company should be $100 million.
This is actually easy to calculate, thanks to www.kitco.com – or at www.caseyresearch.com . They have an online calculator in which you just
1. input the grades on the resource from the press release, and it tells you what the value per tonne is.
2. Multiply it by the tonnage (you have to do that yourself) in the press release and PRESTO – gross metal value.
3. Shift the decimal point over 1 spot to get 10% of the value.
4. Divide by the amount of shares outstanding and you get what the price of the stock SHOULD be.
Lets take a real case example. Donner Metals (DON-TSXv) just announced their first resource calculation for a developing zinc project in Quebec. Here’s what the press release said:
DONNER METALS LTD.-INITIAL BRACEMAC-MCLEOD NI43-101 INDICATED RESOURCE: 3,648,000 TONNES AT 11.09% ZINC, 1.55% COPPER, 31.34 G/T SILVER AND 0.48 G/T GOLD.
Then I go here - www.kitco.com/pop_windows/kitcorockcalc.html - and insert those values into the chart, and I get a value of $201.05/tonne.
Multiply that by the 3,648,000 tonnes and you get a gross metal value, according to Kitco, of roughly $733,440,000. So Donner should have a Kitco-calculated market cap of $73,344,400. But they only own 35% of the deposit, so that, again according to Kitco, values them at $25,670,400. Divide that by the 44 million shares out, and you get 58 cents.
So by the 10% rule and the Kitco calculation, the stock should trade at 55 cents. But it’s 12 cents, and in this market I would suggest 55 cents is a little aggressive. However, the 10% rule does give investors a benchmark to decide in their own mind what value is.
The message is – you can do your own research, quite easily, to determine whether a company’s stock price is under-, fairly-, or over-valued. Use the free internet tools available to you and use your own judgment.
Gord Zelko, Publisher
Source
Fundamental & Technical analysis in the Stock Market are two different things but it will be great if they showing the same signal (buy or sell).
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